Marsh McLennan Agency's
One of the key insights from the report is the identification of three major factors driving fluctuations in commercial property insurance rates. Firstly, there has been a noticeable uptick in losses attributed to historically non-modeled secondary perils. The report cites AM Best, which shares that secondary perils account for higher total losses than primary perils. Tornadoes, hailstorms, flooding and wildfires are among the secondary perils posing significant risks, with floods ranking as the highest loss leader in the United States. Individual secondary peril events can result in losses upwards of $10 billion, according to Marsh McLennan Agency. Despite this, only a small fraction of global flood losses are insured, highlighting a significant protection gap in the market.
In addition to the surge in secondary peril-related losses, rising replacement and repair costs due to inflation have added to the pressure on commercial property insurance rates. Marsh McLennan Agency estimates that reinsurance pricing increased by 50% in 2023, creating one of the toughest markets in reinsurance since Hurricane Katrina in 2005. So far in 2024, it seems that the market has stabilized. Total median risk-adjusted price increases were in the single digits following treaty renewals, according to the report, and the industry can likely expect a gradual increase in appetite and capacity.
Another critical issue highlighted in the report is the prevalence of underinsured properties, with an estimated 87% of buildings undervalued due to labor shortages and inflation,
According to the report, risk management will be key in responding to these industry trends. Marsh McLennan Agency underscores the need for market cycle awareness, advocating for more accurate underwriting submissions and fostering stronger client-underwriter relationships. The report also highlights how accurate risk assessment is paramount in informing decisions regarding coverage modifications and loss prevention strategies. Comprehensive risk assessments enable brokers and insurers to identify hazards and vulnerabilities, offering valuable risk mitigation advice to policyholders.
Marsh McLennan Agency also emphasizes data utilization in diversifying risk management portfolios. By leveraging data and partnering with knowledgeable brokers who understand industry-specific risks, businesses can ensure comprehensive coverage tailored to their unique needs. From exploring alternative risk transfer mechanisms such as captives and parametric insurance to implementing shared and layered programs, the report urges businesses to adopt a more proactive approach to risk management in response to changes in the industry in the upcoming year.
